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The supplemental budget the Democratic governor unveiled has about $200 million more in spending, including $8.2 million in response to a settlement that requires the state to expand mental health services for children. The proposal comes six months after he approved a $33.6 billion two-year state budget.

Inslee said the state doesn't currently face a budget shortfall but steady economic growth is not likely to keep up with growing expenses as the state heads toward the 2015-2017 biennium.

"Holding steady this year will allow us to prepare for the next year when the situation and the task before us will be greater," he said.

Nearly two years ago, the Washington Supreme Court ruled that the state is not fulfilling its constitutional duty to pay for basic education and is relying too much on school districts to raise extra dollars through local levies. The justices want to see the Legislature pay for previously adopted education reforms and proof of yearly progress toward completing the work by 2018. Inslee's budget office has estimated those costs at about $5 billion over the next few years.

The budget that passed earlier this year added $1 billion to the state's education system.

Inslee said that to address increases in the number of people receiving state services, increases in student enrollments and other costs, the state will need to take additional steps. While he stopped short of discussing general tax increases, he discussed the potential of closing tax exemptions and seeking greater efficiencies from state government.

"Our state will be faced with larger challenges that cannot be ignored, and we will need the Legislature in the next biennium to step up to the plate to solve these fundamental underlying problems with our fiscal condition in our state," he said.

Inslee said that some actions taken in both the two-year budget and supplemental budgets, such as a variety of fund transfers, are only short-term fixes.

"Next biennium, we will have to face the music," he said.

Sen. Andy Hill, a Republican from Redmond who is the chief budget writer for the Senate's Majority Coalition Caucus, said heading into a new session without a budget shortfall was good news. But he scoffed at the idea that new revenue would be needed in future years, saying lawmakers just need to prioritize spending.

"In a lot of ways, raising taxes is the lazy way out," he said. "If you've got a problem, it's very easy to raise taxes. The hard problem is when you dig in, you say how are we running government, how are we spending the money, how do we reprioritize that."

Inslee's budget proposal includes:

- $26 million for a one-year extension of two tax breaks intended to encourage private sector investment in high tech research and development.

-$13 million for technology infrastructure upgrades, including one meant to make it easier for small businesses to apply for permits and licenses.

-Nearly $11 million to cover wildfire costs from this summer and anticipated costs for spring 2014.

-$8.2 million to start implementation of a settlement from August, when the state agreed to make significant changes to the way it provides mental-health care to the most troubled children who qualify for Medicaid. A class-action lawsuit had argued young people at risk were being unnecessarily institutionalized. The settlement calls for intensive in-home and community-based care, and up to 6,000 children and youth under 21 will be served each year when the program is fully implemented.

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